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From: Nigel
ArtDate: 22nd September 2006
Section: (FILLYABOOTS NEWS RELEASES)
Remote Name: 87.74.115.61
Date: 10/10/06
Time: 22:50
22nd September 2006
GVM Metals Ltd - Preliminary Final Results
News Item - Conduit PR
Preliminary Final Results for the Year Ended 30 June 2006
GVM Metals Limited (“GVM” or “the Company”) is pleased to announce its preliminary final results for the year ended 30 June 2006. A full copy of the financial report is available at the Company’s website, www.gvm.com.au
Highlights
Revenue for 2006 was $32,340,604 (2005: $31,000,529) largely from the NiMag business. At current exchange rates and nickel prices, NiMag is expected to generate substantially higher operational cash flows over the 2006/07 financial year. Net cash generated from operating activities was $398,234 (2005: $2,360,481). Earnings before interest, tax and depreciation was $1,245,403 (2005: $2,774,567). The earnings before interest tax and depreciation, adjusted for the AIM listing and share based payments was $2,200,938. Following the acquisition of a 49% interest in the Holfontein coal project, GVM conditionally acquired a 74% interest in the Limpopo coal project during the period under review. In August 2006, the company announced the conditional merger of its coal interests with those of Motjoli Ltd, its Holfontein J.V. partner. This transaction will result in GVM holding 100% of the Holfontein project, 74% of the Limpopo Coal Project and a 50% share in the Baobab coal project, which is located some 50kms south of the Limpopo project. The Company is in an advanced stage of negotiation to acquire a further coal interest in the Limpopo province of South Africa. “GVM’s strategic direction is firmly set towards becoming a major South African coal producer over the next five years whilst continuing to develop its existing and profitable metal processing business and seeking other mining opportunities” said Managing Director Simon Farrell today. “The primary focus for the forthcoming two years is to bring Holfontein into production and complete feasibility studies for at least one of the Limpopo/Baobab coal projects and position GVM as a major player in the re-awakening of the coal industry in South Africa.”
For more information contact:
Simon Farrell, Managing Director GVM +61 417 985 383 or +61 8 9322 6776
Leesa Peters Conduit PR +44(0) 20 7429 6606 / + 44 (0)781 215 9885
Olly Cairns Corporate Synergy Plc +44(0) 20 7448 4400
Directors’ Report
Principal Activities
Whilst the principal trading activity of the Company and it controlled entities (“Consolidated Entity”) is the manufacture and distribution of Nickel and Magnesium alloys, the Company’s primary focus is to expand its coal interests in South Africa. Following the acquisition of a 49% interest in the Holfontein coal project, GVM conditionally acquired a 74% interest in the Limpopo coal project during the year. In August 2006, the company announced the conditional merger of its coal interests with those of Motjoli Ltd, its Holfontein J.V. partner. This transaction will result in GVM holding 100% of the Holfontein project, 74% of the Limpopo Coal Project and a 50% share in the Baobab coal project, which is located some 50kms south of the Limpopo project. The Company is in an advanced stage of negotiation to acquire a further coal interest in the Limpopo province of South Africa.
Results
Revenue for 2006 was $32,340,604 (2005: $31,000,529) and net cash generated from operating activities was $398,234 (2005: $2,360,481). Earnings before interest ($669,044), tax ($566,732) and depreciation ($242,768) was $1,245,403 (2005: $2,774,567). The 2006 results include a share based payment charge of $551,200 relating to share options issued to the company’s directors on 28 June 2006 as well as $404,335 in listing and marketing expenses relating to the Company’s successful listing on the Alternative Investment Market (AIM) in London during the year. The earnings before interest tax and depreciation, adjusted for AIM listing and share based payments is $2,200,938.
Nimag reported earnings before interest ($669,044), tax ($566,732) and depreciation ($226,725) of $2,823,541.
The loss of the Consolidated Entity for the 2006 financial year after income tax and minority interests was $587,011 (2005: Profit of $793,338).
Dividends
The Directors do not recommend payment of a dividend in respect of the financial year ended 30 June 2006.
Review of Operations
During the year the operations of the Consolidated Entity included:
NiMag (Proprietary) Limited - manufacturing and distribution of nickel and magnesium alloys; Master Alloy Traders Limited - trading of minerals from South Africa; SA Mineral Resources Corporation Limited - investment in mineral processing in South Africa; and Holfontein Coal Project - JV coal project based in South Africa.
Nimag (Proprietary) Limited (“NiMag”)
NiMag began producing alloys in 1962.
Ductile iron (also called spheroidal graphite iron or nodular cast iron) was discovered in the 1940s. The introduction of magnesium into the melt results in nodular rather than flaky graphite in the resultant cast iron, giving the cast iron properties approaching those of steel, while maintaining the advantages of the casting process. The magnesium is usually added as a nickel alloy, making it easier to add and contribute to product quality. NiMag still primarily supplies the ductile iron market as a specialist supplier with a world market share of about 35% in its core product line. 95% of sales are exported through 35 distributors world wide. Demand for NiMag’s alloys is proportional with world demand for ductile iron, principally for automotive parts and industrial machinery. Demand for NiMag products has grown gradually to meet current capacity of 400 tonnes per month (all products). Potential for expansion of the core nickel-magnesium alloy product is presently limited by the size of end markets. NiMag is increasing the penetration of a variety of other products developed for alternative markets. NiMag produces approximately 500 tonnes of cast and slit fibres which are used in reinforced concrete by domestic mining and tunneling operations.
NiMag’s competitive advantages include low electricity and labour costs. The main input cost is locally sourced nickel raw material, which is matched with sales to minimize nickel price exposure.
GVM acquired 74% of NiMag from a management group in January 2004. The consideration was R37 Million ($A8 million) comprising R7.5 million in cash up front, R20 million borrowed against the business and R9.5 million in vendor finance. GVM retained the right to buy the balance of NiMag for R13 million payable in GVM shares issued at $A0.40 each. It is intended that these shares will be issued immediately on GVM’s listing on the Johannesburg Stock Exchange (JSE), which is expected to occur in the last quarter of 2006. When these shares are issued, GVM will own 100% of NiMag.
Since GVM acquired the business, NiMag has broadly met or exceeded production and sales budgets. However the strength of the Rand through the period has inflated costs relative to the US dollar denominated sales. Despite the difficult trading conditions imposed by the Rand’s strength in 2005 and 2006, NiMag traded profitably, contributing about $4,575,000 in surplus funds to repayment of its acquisition costs. At the end of June 2006, GVM’s remaining acquisition loans comprised $2,342,000 in bank debt and $1,876,700 to the NiMag vendors. The NiMag vendor loans will be repaid at the end of 2006.
Depreciation of the Rand and strengthening of Nickel prices since January 2006 has widened NiMag’s profit margins. At current exchange rates and Nickel prices, NiMag is expected to generate substantially higher operational cash flows over the 2006/07 financial year.
Metal Alloy Traders Limited (“MATS”)
MATS is incorporated in Jersey in the Channel Islands and it trades various metals purchased from Nimag in South Africa.
SA Mineral Resources Corporation Limited (“Samroc”)
Samroc is a Johannesburg Stock Exchange listed company which produces manganese sulphate chemicals. During the latter half of 2005 GVM stated its intention to dispose of its entire investment in Samroc and sold 15,000,000 shares in Samroc at two South African cents per share during May 2006.
As a result of its intended disposal, the Samroc investment has been reclassified as a Non-current Investment Held for Sale.
Holfontein Coal Project
Early in the second quarter of 2005, a 49% interest in the coal mining project “Holfontein” was acquired with a Black Economic Empowerment (“BEE”) partner, Motjoli Resources (Pty) Ltd. The acquisition is subject to a number of conditions, principally related to the size of the economically recoverable tonnes as determined by independent experts.
The Old Order Prospecting Rights relating to the project were successfully converted to New Order Prospecting Rights during the year (as required by the South African Department of Minerals and Energy) and a drilling program is currently underway to determine the economics of the project. The feasibility study is expected to be completed by the end of the 2006 calendar year.
The Holfontein Coal Project is currently the subject of further negotiations as discussed under Future Developments, Prospects and Business Strategies in this report.
GMA Resources plc (“GMA”)
The Company disposed of its entire investment in GMA during the year.
Review of Financial Position
Liquidity and funding The net assets of the Consolidated Entity have decreased from $8,971,969 as at 30 June 2005 to $7,661,354 in 2006. This was mainly due to a negative exchange movement of $1,369,241 in the translation of opening equity balances of subsidiaries charged directly to equity. The Group also incurred $404,335 in expenses related to its listing on the AIM and recorded a loss of $98,630 representing its share of Samroc’s loss during the first half of the year, which would not recur in future years. The Group raised approximately $895,000 during the year from the issue of shares and repaid some $1,892,500 of debt. The Group also raised £3,200,000 through the placing of shares during July 2006.
The Consolidated Entity’s net working capital at year end was $1,628,543 whilst interest bearing liabilities were $5,153,889.
Impact of legislation and other external requirements From 1 July 2005 the Consolidated Entity is required to comply with Australian equivalents to International Financial Reporting Standards (AIFRS) issued by the Australian Accounting Standards Board. The impact of the resulting changes in accounting policies are disclosed in Note 28 of the financial report.
There were no changes in environmental or other legislative requirements during the year that have significantly impacted the results or operations of the Consolidated Entity.
Future Developments, Prospects and Business Strategies
Proposed JSE listing The Company successfully listed on AIM in December 2005 and completed a GBP 3.2 million (A$7.9 million) capital raising in July 2006. Under current South African Reserve Bank requirements, it is difficult to acquire South African assets from South African residents with shares if those shares are not listed on the Johannesburg Stock Exchange (JSE). Following the conditional acquisition of the Limpopo Coal project by the issuance of GVM shares and the subsequent Motjoli transaction, it became necessary for GVM to seek a listing on the JSE, which it hopes to obtain by the end of October 2006.
GVM believes that a JSE listing will assist the company to further expand its mining interest in South Africa by allowing the Company to acquire assets by means of share issue.
Conditional merger with the coal assets of Motjoli Resources In August 2006, the company advised that it had conditionally acquired Motjoli’s 51% interest in the Holfontein Coal Project, Motjoli’s 50% interest in the Baobab J.V. Coal Project and its 100% interest in three Limpopo prospecting permits adjacent to those held by the Baobab J.V. The Baobab J.V. is some 50/60km south of GVM’s 74% owned Limpopo Coal Project.
GVM will hold - post closure of the Limpopo and Motjoli transactions - a very substantial holding in what is widely regarded as South Africa’s new coal province.
Strategic direction
GVM’s strategic direction is firmly set towards becoming a major South African coal producer over the next five years whilst continuing to develop its existing metal processing business and seeking other mining opportunities.
The primary focus for the forthcoming two years is to bring Holfontein into production and complete feasibility studies for at least one of the Limpopo/Baobab coal projects.
The combined Limpopo and Baobab Coal Projects comprise 23 prospecting leases totalling 32,000 Hectares.
After 20 years of dormancy, the future for coal is very bright in South Africa. GVM is determined to become a major player in the re-awakening of the coal industry in South Africa
Changes in State of Affairs
Significant changes in the state of affairs of the Consolidated Entity during the financial year were as follows:
On 13 October 2005, the company consolidated its share capital in the ratio of 1 share for every 10 shares previously held. On 31 October 2005, the Company issued 200,000 shares at an issue price of 25 cents per share to settle certain creditor balances; During February and March 2006 the company placed a total of 1,400,000 shares at an issue price of 25 cents per share, to raise total gross proceeds of $350,000; and On 8 March 2006, the Company issued a total of 2,212,500 shares at an issue price of 25 cents per share to settle certain creditor balances as well as to acquire preference shares in Nimag (Pty) Limited. Likely Developments
The Consolidated Entity will continue to expand its coal interests in South Africa and is targeting the establishment of its first operating coal mine within the next 18 to 24 months. It will also continue to pursue investment opportunities both in the mining and metal processing industries in the forthcoming year.
Events Subsequent to Balance Date
In July 2006, the Company successfully completed a share placement of 24,615,384 new ordinary shares which raised £3,200,000. These shares commenced trading on the Alternative Investment Market of the London Stock Exchange (“AIM”) on 13 July 2006.
On 22 August 2006 GVM announced that it has executed binding Heads of Agreement with Motjoli Resources (Pty) Ltd (Motjoli) to acquire Motjoli’s 51% interest in the Holfontein Coal project, taking GVM’s interest to 100%. Further, the Heads of Agreement includes the acquisition of Motjoli’s 50% interest in the Boabab J.V. coal project and its 100% interest in three Limpopo prospecting licenses adjacent to those held by the Boabab J.V.
The consideration payable for the Holfontein and Boabab J.V. interests is 34,863,226 ordinary shares plus a further 3,417,964 ordinary shares to be issued on the grant of an export allocation to GVM at the Richards Bay Coal Terminal, for a minimum of 100,000 metric tones of coal per annum.
Jos Simson Conduit PR Ltd 76 Cannon St EC4N 6AE Office: +44 (0) 20 7429 6666 Direct: +44 (0) 20 7429 6603 Fax: +44 (0) 20 7429 6699 Mob: +44 (0) 789 987 0450
www.conduitpr.com
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